Desking Tools
A desking tool is a software program that helps product dealerships (e.g., automotive dealerships) structure deals and maximize both opportunity and profitability. A customer seeking to finance a purchase of a product, such as a vehicle, may face financing restrictions. These financing restrictions may be imposed by lenders based on various factors including, for example, the customer's income, credit history and/or other factors taken into account by lenders. In this regard, lenders generally evaluate a customer's ability to pay for a vehicle and may limit payment amounts. Lenders also protect their business interest by limiting loan amounts according to the value of the collateral (the vehicle). This is achieved by limiting advance or total advance also known as LTV (loan-to-value).
Because lenders limit payment amounts, auto dealerships may structure deals “backwards.” This means the dealership begins with a target payment and then determines which vehicles in their inventory can be sold to the customer within the parameters of the target payment and lender guidelines. Vehicle prices may be established as a function of a target payment and advance (amount a lender is willing to loan against a particular vehicle).
Structuring auto deals may involve establishing sales price, applicable trade allowance, and the selling price of back-end products including warranties, GAP insurance, and other ancillary products. Structuring auto deals may further take into account taxes, fees, cash down payment, payoff amounts on trades, and/or similar factors. These factors may be established with interest rates and terms that vary by vehicle and customer. Factors affecting the structure of a deal may include, but are not limited to:                a. Customer income        b. Customer debt and obligations        c. DTI—debt to income ratios allowed by lenders        d. PTI—payment to income ratios allowed by lenders        e. Target payment—established by the lender or customer        f. Cash down payment        g. Trade allowance        h. Trade equity—difference between trade allowance and payoff of trade        i. Advance amount: amount loaned against sale price of vehicle        j. Total advance amount: advance plus tax, tag, fees, and products such as warranty and GAP insurance, etc.        k. Vehicle cost        l. Taxes & fees        m. Buy rate—base interest rate which lender is willing to extend credit        n. Spread—optional interest added by dealer to buy rate for profit        o. Contract rate—interest rate at which customer is contracted (equal to buy rate+spread)        p. Term—# months of loan        q. Number of days to 1st payment        
Structuring a deal may require manipulation of these variables in mathematical equations. Dealerships may use desking tools to facilitate establishing a selling price and deal structure that optimizes front-end profit. These tools quickly run complex calculations on a dealership's entire inventory and identify the best vehicles for any customer. After calculations are run, a list of vehicles that meet the payment and advance criteria may be presented to the user, commonly sorted by front-end gross. Front-end gross is the profit earned on the sale of the vehicle itself.
However, existing desking tools do not take into account all of the profits that a dealership may earn on a transaction and accordingly, dealerships may lose available profit through use of existing desking tools.
Dealer Management Systems
Dealer Management Systems assist dealerships in structuring deals. A dealer management system comprises a bundled system created specifically for car dealerships but, which may also be adapted for other product dealers, such as boat, RV, and power sports dealers. These systems often utilize software catering to the needs of the finance, sales, parts, inventory, and administrative components of running the dealership.
Dealer management system software typically includes support for various aspects of running a dealership such as tracking vehicle inventory, tracking sales, contracting and reporting, finance and insurance calculations, menu selling systems, tracking customers (and customer follow up), accounting, managing the dealer website, and calculating employee commissions.